Report: SEC probing shale gas production claims
Gas Daily (02-Aug-11)
By Rodney White
The Securities and Exchange Commission is investigating the accuracy of claims made by Marcellus Shale gas producers regarding their production volumes, according to a New York-based financial services company.
The SEC has begun issuing subpoenas to companies developing Marcellus reserves, Baird Equity Research said in its July 28 newsletter. Baird based its report on what it called an "attorney advertisement" published July 27 by the law firm Fulbright & Jaworski.
Baird noted in its report that US Representative Maurice Hinchey, a New York Democrat and frequent critic of shale gas drilling, asked the SEC to investigate the issue in June following the publication of assertions in The New York Times that some companies were overstating their gas holdings.
"The SEC is responding to these concerns by formally looking into the matter," the newsletter said.
The SEC would not comment on the Baird report, nor would Fulbright & Jaworksi. ExxonMobil spokeswoman Karen Matusic said the company hasn't received any subpoenas, and Jim Gipson, a spokesman for Chesapeake Energy, declined to comment. Both companies have substantial Marcellus holdings.
In a June 27 letter to SEC Chairman Mary Schapiro, Hinchey said the Times stories "raise serious questions about the economics behind the shale gas rush. Some shale gas companies may be intentionally overbooking their gas reserves by not factoring in new well production data that shows wells were not producing as much gas as originally predicted."
He said drillers "may not only be reporting overly optimistic reserve estimates, but they may also be underreporting costs."
Hinchey said he wants the SEC "to consider updating its oil and gas reserve reporting requirements to provide greater disclosure to investors and the public." He recommended third-party audits and requiring companies to reveal the methodologies and technologies they use to develop reserve estimates.
US Representative Ed Markey, a Democrat from Massachusetts, asked the SEC on the same day whether a 2009 rule allowing gas companies more flexibility in how they reported unproved reserves "had allowed the companies to paint an overly optimistic picture of their reserves."
"When it comes to a fuel that millions of Americans depend upon to meet their energy needs, the SEC should not violate the 'trust, but verify' principle," Markey said in a letter to Schapiro. "The SEC needs to provide answers on how they think these new rules could be affecting assumptions of domestic natural gas reserves."
Markey also asked the Energy Information Administration for a list of outside contractors used to determine estimated reserves, as well as any information that could cast doubt on "the economic viability of shale gas production" (GD 6/28).
US Representatives Carolyn Maloney and Jerrold Nadler, both Democrats from New York, also sent letters to the SEC asking if the agency would independent verify gas reserves. They also questioned whether "it is still justified to allow companies to keep the details of their projections a trade secret."
The Timespublished stories June 26 and 27 that kicked up a firestorm of protest from exploration-and-production companies and industry advocates. The newspaper quoted emails from several anonymous EIA officials who cast doubt on whether the exploitation of shale gas basins would live up to industry expectations. The article quoted one EIA staffer saying some producers "will go bankrupt" due to ill-advised investment in shale gas (GD 6/28).
The pushback against the news stories was swift and aggressive. Among the critics was the head of EIA, Richard Newell, who defended the way his agency assesses gas reserves and production levels.
Newell insisted that EIA "has done an outstanding job of keeping track of something that is a rapidly emerging change in the [energy] system. Natural gas is being produced, it is being measured, and it is being produced from shale gas reserves."
Ed Ireland, executive director of the Barnett Shale Energy Education Council, agreed. "We are seeing more and more monster wells, wells that are just orders of magnitude larger than previous wells."
Rodney White
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